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Leasing: an opportunity for the public sector?

Hospitals, like many other public establishments, are slowly starting to use leasing to finance their equipment
Hospitals, like many other public establishments, are slowly starting to use leasing to finance their equipment

More and more private companies are using leasing for their professional equipment, via specialized structures such as financial institutions. They are not alone: public sector bodies are also starting to adopt this practice.

Phillipe Jouglard, Head of Strategic Analysis and Projects at BNP Paribas Leasing Solutions provides us some insights on the trend.


Are the public sector institutions and the regional governments driven by the same motivations as the private sector companies when it comes to leasing?

Yes, they have essentially the same motivation, because they all have the same concerns regarding access to new technologies, no matter the type of equipment, and the same need for control and predictability of costs. For the public sector, like for private companies, leasing means guaranteed access to the right equipment at the right time, while avoiding the constraints of regulatory pressure.

Today, the investment capacity of the public sphere has become very limited; everyone knows that the levels of debt and fiscal pressure are at an all-time high. So, the public sector is facing multiple challenges when it comes to the renewal of their equipment, which in many cases is undeniably obsolete. For example, for public lighting: today, the consensus on the market is that there are 9-9.5 million streetlights that are totally obsolete that should have already been replaced.  This delay is due to the insufficient investment capacity of the local government.


So leasing basically allows public structures to renew their equipment regularly at low cost?

That’s right. The public sphere is starting to lean very heavily towards leasing or rental.  To continue with the same example, if you want to renew your public lighting, you do it either by investing, which may cause you difficulty because it will prevent you from investing in other projects, or you switch to rental, which is accounted for in your operating budget (and not an investment), just like your electricity expenses.  In addition, by changing your lights, you will drastically reduce your energy consumption.  Rent will account for only part of what you’ll save on energy costs thanks to this renewal.

Similar approaches are also starting to appear, for example, in the medical sector. Hospitals have the same constraints: their budgets are limited while equipment, which is constantly becoming more and more innovative and technologically advanced, represents an increasingly high investment cost.  Leasing responds to this issue,  allowing easier access to the latest generation of equipment.  In addition, this equipment costs less to use than obsolete equipment does.  In the end, not only does the hospital come out ahead, so do the patients who benefit from a better standard of care provided by the highest-performing equipment.


Can ecological considerations also encourage public bodies to opt for leasing? We have seen that with lighting, leasing allows you to reduce your energy costs via the modernization of equipment.

They surely do. Local governments represent their electors, who are increasingly aware of issues like climate change, alternative sources of energy, etc. Furthermore, leasing means that when, at the end of a contract, a city hall chooses not to keep its equipment, it can be sure that said equipment will be recycled according to national/international standards. recycling is in fact the responsibility of the manufacturer or the financial institution.


Are leasing conditions the same for private companies and the public sector?

It’s more or less the same for private companies and the public sector. There is one difference: when we sign with a private company, it’s our contract [that of the financing institution] that is applied.  With a public body, it is the procurement contract that is applied.  So, it is important to verify, before submission, the compatibility of the procurement contract with the leasing or rental solution.  A certain number of contracts call for tenders, and may include demands or clauses that are incompatible with this type of financing.  That means that there are still many public sectors that either lead to an amendment of the framework of a competitive dialogue or are declared unfruitful.  There is still some misunderstanding, notably in small public entities, of how these new types of financing products work.  But that is evolving as the public sphere “professionalizes” itself.  Practices in the public sphere are progressively aligning themselves with those of the private sector.

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